Today I came across a video of Luo Yonghao's past remarks: if a small startup company creates a platform-level product, once it's launched, there's a high probability it will be copied within 18 months, leaving nothing left. This inadvertently reminded me of the scene when Jinmailang promoted 'Liangbaikai' (cool boiled water). Jinmailang was the first to propose the concept of 'cooked water,' creating a new category in bottled drinking water.

When consumer education had basically established awareness and the Liangbaikai market began to take shape, Kangshifu launched 'He Kaishui' (drinking boiled water), and Nongfu Spring launched 'Baikaishui' (plain boiled water). From a market category perspective, this phenomenon is undoubtedly beneficial—everyone works together to enlarge the 'cooked water' pie and profit collectively.

△ Jinmailang Liangbaikai & Kangshifu He Kaishui

However, from the market share in first- and second-tier cities, Jinmailang Liangbaikai's performance is not ideal. In these regions, Jinmailang's channel strength is far weaker than that of Kangshifu and Nongfu Spring. Whether the first advocate of cooked water is the biggest beneficiary remains to be further verified.

Of course, Jinmailang Beverage is also a backbone force among domestic beverage companies. If it weren't a company of Jinmailang's scale that proposed Liangbaikai, but rather a small or micro enterprise that came up with the concept first, then it would likely not be the biggest category beneficiary in the future.

The above viewpoints involve some game theory knowledge. Today, I'll briefly analyze a few cases with simple examples.

****When You're Not Strong Enough, Understand the Smart Pig Game

What is the Smart Pig Game?

In a long pigpen, there are two pigs. At one end of the pen is a trough, and at the other end is a pedal (opposite the feeding opening) that controls the food in the trough. When the pedal is pressed, 10 units of pig feed enter the trough. However, the 'labor' required to run to the trough after pressing the pedal consumes the equivalent of 2 units of feed. The problem is that if one pig goes to press the pedal, the other pig can get a head start and eat the food at the trough.

The final results: 1) If both pigs press the pedal simultaneously and run to the trough, the big pig eats 7 units, gaining 5 units, and the small pig eats 3 units, actually getting 1 unit; 2) If the big pig presses the pedal and runs to the trough, the small pig gets there first, eats 4 units, actually getting 4 units, while the big pig eats 6 units, pays 2 units, and gains 4 units; 3) If the big pig waits and the small pig presses the pedal, the big pig eats first, consuming 9 units, gaining 9 units, while the small pig eats 1 unit but pays 2 units, actually getting -1 unit; 4) If both are lazy and do nothing, both get 0.

Therefore, for the small pig, regardless of whether the big pig presses the pedal, the small pig will choose the 'wait' strategy—comfortably waiting by the trough is the best choice. Now for the big pig, since the small pig has the 'wait' dominant strategy, the big pig has only two choices: wait and get nothing, or press the pedal and get 4 units.

For example, in 2013, Evergrande invested in Evergrande Spring Water and lost about 4 billion yuan, but it made wedding clothes for other bottled water companies. At that time, Evergrande Spring Water had just entered the bottled water industry and spent heavily on advertising the Changbai Mountain deep volcanic mineral water as its water source.

It's worth noting that well-known water companies like Nongfu Spring, Kangshifu, and Wahaha, which had been operating in bottled water for years, had already built factories in Changbai Mountain and, leveraging their strong channel and brand power, had distributed their products to every street and alley. A POP note at a retail point indicating the water source was enough to boost sales. At that time, Evergrande Spring Water's advertising was essentially promoting the sales of these competitors. Evergrande Spring Water was the 'small pig' pulling the lever.

Summary: In real-world business competition, the relationship between small and large enterprises is like the 'small pig' and 'big pig' in the Smart Pig Game. If a small enterprise truly invests heavily in innovation, it's like the small pig personally pressing the button. The large enterprise can then leverage its scale advantage to imitate and take away most of the profits, while the small enterprise ends up losing out and becomes the 'starved' small pig.

Therefore, as a rational decision, large enterprises can choose to innovate, while small enterprises can only choose to follow and free-ride. A reminder here: you must clearly recognize whether you are the 'big pig' or the 'small pig.' Evergrande is the 'big pig' in the real estate industry, but in the bottled water industry, it can only be considered a 'small pig.'

****The Tragedy of the Commons in Annual Budget Allocation

What is the Tragedy of the Commons? Herders raise sheep on grasslands. A pasture is shared by all and can support 100 sheep. There are ten households, so they agree that each household will raise 10 sheep. A wants to earn more money, so he raises 12 sheep and finds it's fine. Neighbor B also thinks about it and raises 15 sheep. C learns about it and, not wanting to lose out, raises 30 sheep. Gradually, the number of sheep increases significantly. As you can imagine, the grass is quickly eaten up, and there isn't enough, so the sheep starve to death.

The Tragedy of the Commons means: people overuse public resources, leading to resource depletion. Although using public resources wisely can bring long-term benefits to the collective and each individual, individuals are always tempted by the 'why not grab a handful' mentality, adopting selfish short-term strategies, which ultimately exhausts public resources.

Let's give an example: Doing marketing requires money. FMCG companies make next year's expense budget at the end of each year. Generally, the group headquarters retains a certain proportion of the budget (for example, if the comprehensive budget based on next year's sales is 100 million, then 10 million is reserved at headquarters) for flexible use by various regions.

The headquarters' thinking is: regional heads won't waste money because that would reduce profits, and their year-end dividends or bonuses would decrease. But in reality, this is not the case. At the year-end inventory, it's found that the reserved portion of the budget is not only not saved but spent even more wastefully.

So where is the problem? Why do regional heads try every possible way to get their hands on this money, even the most frugal people coming up with countless reasons to spend the public budget pool without restraint?

The reason is simple: It's because this is a commons. When each regional head has their own departmental budget and a public budget, they will all try to spend the public budget first, because even if I don't spend it, others will, and I can't stop them. So I'll spend it first, leading to the tragedy of the commons.

So how to solve this problem? There are two suggestions:

1. Remove the 'commons'—whose expense it is, it's theirs; headquarters doesn't reserve. Allocate all budgets to regions. When the money is mine, management won't have the mentality of 'if I don't spend it, it's wasted.'

2. Combine spending with assessment. The market is ever-changing, and some unexpected expenses cannot be rejected with a one-size-fits-all approach, but assessment is necessary: first, cost-effectiveness (meeting targets); second, profit loss (affecting the team's year-end profit bonus).

Summary: The tragedy of the commons is quite common in the FMCG industry. For example, if a distributor has a blank market or blank channel without clear ownership, salespeople will try every means to sell goods there for commission, but without good after-sales service, leading to many products with long shelf life, which in turn affects the distributor's overall market reputation.

The best way to solve this problem is to change from 'public' to 'private,' from 'big pot rice' to 'contract system,' with additional mechanisms conducive to the contract responsibility system. This is also the core idea of regional market contracting.

****The Prisoner's Dilemma in Community Group Buying

What is the Prisoner's Dilemma? The police catch suspects A and B. Although they know they are definitely criminals, they lack decisive evidence. Finally, they are given three choices: 1) If both deny, each gets one year; 2) If both confess, each gets five years; 3) If one confesses and the other denies, the confessor is released, and the denier gets ten years.

Obviously, the optimal choice for both is to deny, so each only gets one year. But the problem is that they are held in separate rooms.

If we think from human 'nature,' both will inevitably choose the decision that is most beneficial to themselves, because if they confess, they only get five years. But if they deny and the other confesses, the other will be released, and they will get ten years.

So to prevent the worst outcome (the other confesses, I deny), both have to give up the best strategy (both deny) and choose the worst strategy (both confess). This is the so-called 'Prisoner's Dilemma.'

Let's look at community group buying over the past year or two.

The basic logic of community group buying is 'pre-sale, next-day delivery, self-pickup.' Through internet technology, at extremely low cost, it collects massive pre-sale demands the night before, and through high-tech-driven efficient warehousing and logistics, delivers to communities the next day, truly unleashing the power of this model and benefiting consumers. So as a new retail format, it is a highly promising track with great potential. At the same time, it was discovered by capital...

Price wars are a very common phenomenon in market competition. It's not hard to see that the pandemic in 2020 accelerated the野蛮 growth of home delivery services. Major capital groups have entered the community group buying business, using capital to expand market share and achieve monopoly positions.

The simplest and most effective way is to lower prices to attract traffic, from the initial platform buying and selling at the same price, to platform subsidies, and finally to subsidies plus offline promotion, fighting fiercely.

At this point, the major platforms are like the 'prisoners' above, facing two choices: burn money to lower prices or operate normally. So to prevent the worst outcome (the other lowers prices, I don't), they can only give up the best strategy (both don't lower prices) and choose the worst strategy (both lower prices). This is the 'Prisoner's Dilemma.'

How to solve this problem? There are two models to consider:

1. The vested interest is greater than the 'confession benefit,' or there is authoritative third-party supervision. In movies, we often see that in criminal gangs and underworld organizations, on one hand, enough benefits are given to the arrested 'prisoner,' and on the other hand, betraying 'brothers' means never being able to survive in the underworld, and their families will also be hunted by the gang.

It is this third-party punishment mechanism that makes retaliation and punishment credible, thus promoting cooperation among prisoners. For community group buying, if an institution can severely punish 'commercial monopoly' and 'malicious competition,' it can greatly reduce the risk of low-price competition.

2. Faith + trust. In movies, some sworn brothers who have faced death together never betray each other, leaving a deep impression. Returning to community group buying, whether major platforms can establish such common faith and trust is unknown now, but as long as they work together in this direction, I believe that day won't be far off.

Summary: The 'Prisoner's Dilemma' is considered a very bad problem in human society, where self-interested actions result in harm to everyone. It's even more common in the FMCG industry. Take some distributors as an example:

Last year, with significant raw material price increases, brand owners had already issued price increase notices, but distributors, considering whether competitors in their regions would raise prices, tormented each other, operating at zero profit without face-to-face communication or mediation through local chambers of commerce.

Another example is some high-quality retail points: manufacturers now 'overindulge' some high-sales outlets, competing with display fees, entry fees, etc., giving higher and higher amounts, leading to high-sales outlets not making money and even losing money.

Therefore, FMCG manufacturers urgently need to find methods, such as punishing non-cooperators, building retaliation capabilities against non-cooperative behavior, increasing trust through 'hostages,' building a loyalty culture, establishing long-term relationships, etc., to salvage the situation where both sides lose.